Download ESCAP High-level Policy Dialogue

 ESCAP High-level Policy Dialogue
Ministry of Finance of the Republic of Indonesia International Economic Summit 2013
Eleventh Bank Indonesia Annual International Seminar
“Macroeconomic Policies for Sustainable Growth with Equity in East Asia”
15-17 May 2013, Yogyakarta, Indonesia
Jointly organized by
UN ESCAP, Ministry of Finance of the Republic of Indonesia and Bank Indonesia
Session 1 – Current Macroeconomic Challenges
Presentation
Current Situation and Outlook of Asia and the Pacific
by
Aynul Hasan
Chief, Development Policy Section, MPDD, ESCAP
May 2013
The views expressed in the paper are those of the author(s) and should not necessarily be considered as reflecting the
views or carrying the endorsement of the United Nations. This paper has been issued without formal editing.
Current Situation and Outlook of Asia
and the Pacific
Aynul Hasan
Chief
Development Policy Section, MPDD, ESCAP
ESCAP-Bank Indonesia High-level Policy Dialogue
Macroeconomic Policies for Sustainable Growth with Equity
15-17 May 2013, Yogyakarta
Key messages
• Asia-Pacific economies facing a new normal
of lower growth & increased volatility.
• Time to move from ‘growth first, distribute
later’ to forward-looking policies for inclusive
& sustainable growth.
2
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
2013: Subdued regional growth
– China to grow at 8%, up from 7.8% in 2012
– India to grow at 6.4%, up from 5% in 2012
8
6
4
2
• Inflation likely to remain at 5.1% in 2013
0
2009
2010
2011
Developing Asia-Pacific
– Risk of oil and food price increase
• Lower growth could be “new normal” as
region shows signs of strain from
developed world uncertainty; estimated
output loss of $1.3 trillion by end-2017
– Pre-crisis (2000-2007 ): 8%
– Projected growth (2013-2017): 6.5%
GDP growth
10
Percentage
• Growth is forecast to increase to 6% in
2013 from 5.6% in 2012
2012
2013
Asia-Pacific
Asia-Pacific
Africa
Latin America and the
Caribbean
Arab
2013
2012
Europe
0
2
4
Percentage
3
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Developing Asia-Pacific: from 5.6% in 2012 to 6% in 2013
East Asia excl. Japan: from 6.3% in 2012 to 6.5% in 2013
Real GDP growth
Brunei Darussalam
Cambodia
China
Hong Kong, China
Indonesia
Japan
Lao PDR
Macao
Malaysia
Mongolia
Myanmar
Philippines
Republic of Korea
Singapore
Thailand
Timor-Leste
Viet Nam
East Asia
d
East Asia excl. Japan
4
d
Inflation
2011
2.2
7.1
9.2
5.0
6.5
-0.6
8.3
20.0
5.1
17.3
5.5
3.7
3.6
5.2
0.1
10.6
5.9
b
2012
1.6
7.3
7.8
1.4
6.2
2.0
8.3
9.0
5.6
12.3
6.3
6.6
2.0
1.3
6.4
10.0
5.0
c
2013
1.5
7.0
8.0
3.5
6.6
2.5
8.1
13.5
5.0
15.5
6.3
6.2
2.3
3.0
5.3
10.0
5.5
3.6
4.2
7.4
6.2
a
2011
2.0
5.5
5.4
5.3
5.4
-0.3
7.6
5.8
3.2
9.2
4.2
4.8
4.0
5.2
3.8
13.5
18.7
b
2012
0.5
3.0
2.7
4.1
4.3
0.0
4.3
6.1
1.7
14.3
1.5
3.1
2.2
4.6
3.0
12.0
9.3
2013
1.4
3.8
4.0
4.5
5.0
0.4
6.8
5.7
2.5
12.4
6.5
4.1
2.5
3.5
3.1
8.0
8.0
c
4.6
2.6
1.5
2.2
6.5
5.2
2.9
3.8
6
8
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
global environment
• Loose monetary policies, quantitative easing
(QE), of the developed world including in US
Vulnerability Yardstick
China
Least
vulnerable
Russian Federation
Impact on Asia-Pacific
• Short-term capital flows volatility
• Rapid short-term currency appreciation
Kazakhstan
Thailand
Philippines
• Food and fuel price volatility
India
Indonesia
Impact on Asia-Pacific
• Poverty and inflation
Most
vulnerable
Malaysia
Republic of Korea
0
100
200
5
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Policy challenge 2: Regional
slowdown
• China growth slowdown affects the region
– China is currently the largest individual export market for the rest of the region
– About 50% of imports of intermediate goods to China are sourced from developing AsiaPacific economies and Japan
• China export growth decelerated significantly
– After mid-2012, 10.5% in the second quarter to 4.5% in the subsequent quarter
• India growth and exports still subdued
China: Monthly import growth
150
100
50
0
-50
-100
Imports: Ordinary Trade
Oct-12
Jul-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Imports: Processing
and Assembling
Jan-10
6
2012Q3
2012Q2
2012Q1
Asia-Pacific
2011Q4
2011Q2
2011Q1
2010Q4
2010Q3
0
-10
2011Q3
World
30
20
10
2010Q2
Impact on Asia-Pacific
• Decreased economic activity through the
trade and finance channel
• Estimated regional GDP loss of 3% since the
onset of the global crisis five years ago $870 billion
Export growth
50
40
2010Q1
• Fiscal crisis in the euro zone + Policy uncertainty
in US
Percentage (year-on-year)
Policy challenge 1: Uncertain
Imports: Equipment
Imported for Processing
and Assembling
300
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Policy challenge 3:
Economic insecurity
Informal sector (%)
• Decreased job growth, increased
economic insecurity and vulnerabilities
– High incidence of informal sector jobs
– Nearly 1.1 billion of the region’s workforce
remain trapped in low quality, more pervasive
among women and youth than men
Nepal
India
Pakistan
Indonesia
Philippines
Viet Nam
Sri Lanka
Thailand
China
0
20
• Low social security
– Less than 2% of GDP in many countries
40
60
78
80
100
Percentage
• Youth employment information
– Youth unemployment is forecast to edge
slightly upwards in 2013
– 13.4% in South-East Asia and the Pacific,
10% in South Asia and 9.8% in East Asia
62
42
33
73
70
68
86
84
Youth Unemployment (%)
Indonesia
Sri Lanka
New Zealand
Hong Kong, China
Philippines
Taiwan province of China
Australia
Pakistan
Marshall Islands
India
Republic of Korea
Japan
Macao, China
Singapore
Viet Nam
Thailand
3
0
5
5
9
7
7
5
Percentage
10
11
11
10
12
13
15
15
17
18
15
19
20
7
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Structural impediments 1: Growing inequality
• Income inequality (Gini index) increased
from 33.5 in the 1990s to 37.5 in the latest
available year
• Inequality-adjusted ‘real’ GDP per capita
falls
Sri Lanka: GDP per capita $4,555 to ‘real’ GDP
per capita $2,323 (in 2005 PPP)
Republic of Korea: GDP per capita $27,415 to
‘real’ GDP per capita $19,492.
• Inequality reduces social development gains
by over 20%
Pakistan: Gains reduced by over 30%
Russian Federation: Gains reduced by over
10%
Singapore
Korea Rep
Korea Rep
Russian
Fed
Malaysia
Armenia
Georgia
Kazakhstan
Russian
Fed
Sri Lanka
Turkey
Kazakhstan
Iran Is Rep
Mongolia
Azerbaijan
Uzbekistan
T hailand
Kyrgyzstan
Maldives
Azerbaijan
Armenia
Tajikistan
Sri Lanka
Philippines
Georgia
China
Fiji
Thailand
Bhutan
Maldives
China
GDP per capita
Indonesia
Gini-adj
Turkey
Mongolia
SDI
Gini-adj
Viet Nam
Philippines
0
8
Inequality-adjusted social
development index
Inequality-adjusted GDP per
capita
20000 40000 60000
0.0
0.5
1.0
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Structural impediments 2:
Inadequate tax revenue + progressivity
Tax (% of GDP)
• Many economies in the region have failed to
raise sufficient tax revenue despite rapid
growth
• Region has lowest tax burden of any
developing region in the world
China
Thailand
Korea Rep
Indonesia
Pakistan
Bangladesh
India
0
• The low tax revenue restricts governments’
fiscal space
80
Gini coefficient
– Negative relationship between the tax burden of
countries in the region and their levels of
inequality
2011
2000
5
10
Percentage
15
20
Government tax and inequality
60
40
20
0
0
20
40
General government taxes/GDP
9
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Structural impediments 3: Infrastructure deficit
Population without electricity access
• Impediment to growth, especially in South Asia
and the Pacific islands
– LDCs of the region, such as Afghanistan, Cambodia
and Myanmar have the largest infrastructure deficits
– Power is the most critical bottleneck and then
transportation
• Economic cost of traffic congestion:
Indonesia: 1.2% of GDP
Thailand: 2.1% of GDP
Republic of Korea: 2.6% of GDP
• Financing requirement in the region
– $600 billion to $800 billion per year
Papua New Guinea
Myanmar
Solomon Island
Afghanistan
Vanuatu
Timor-Leste
Cambodia
Korea, Dem Rep
Bangladesh
Nepal
Lao PDR
Pakistan
Indonesia
Mongolia
Bhutan
India
Sri Lanka
Fiji
Philippines
Samoa
Viet Nam
Iran, Islamic Rep
Thailand
Malaysia
China
Brunei Darussalam
Maldives
Korea, Rep
0
10
20
40
60
80
100
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Structural impediments 4: Unsustainable
resource use
Domestic material consumption intensity
• Asia-Pacific economy is requiring more
resources to produce one dollar of GDP
as the economy grows
•
For example, domestic material consumption
intensity and water intensity are very high
• Future growth of resource use in several
countries holds significant implications for
overall resource demand
• Vulnerability to natural disasters
– 42% of the global economic losses due to
natural disasters
– Disaster losses since 1980 have increased
by 16 times in Asia while GDP per capita has
grown by only 13 times
South / South-West
North / Central
South-East
Asia-Pacific
East / North-East
2008
Pacific
1992
World
0
2
4
6
Tonnes per US dollar
8
Water intensity
South / South West
North / Central
South-East
Asia-Pacific
East / North East
Pacific
World
0.0
0.2
0.4
0.6
0.8
1.0
Cubic metres per US dollar
11
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Growth first, distribute later?
Vulnerable employment & inequality hampering productivity growth
12
10
1.2
Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
Growth first, distribute later?
Social security & minimum wages
Public social security expenditure as percentage of GDP (above); Monthly minimum wage rates (right)
13
Time for forward-looking policies
• Social investments to protect people from
multiple shocks & boost their purchasing
power and productivity.
• Global & regional cooperation for long-term
development financing (vs. short-term capital
flows).
14
Thank you!
ESCAP-Bank Indonesia High-level Policy Dialogue
Macroeconomic Policies for Sustainable Growth with Equity
15-17 May 2013, Yogyakarta